Eliot Spitzer Watches the Magicians' Hands

It's always nice to have a reminder that the smoke and mirrors are a distraction calculated to prevent us from seeing what's really going on (h/t):

Everybody is rushing to condemn AIG's bonuses, but this simple scandal is obscuring the real disgrace at the insurance giant: Why are AIG's counterparties getting paid back in full, to the tune of tens of billions of taxpayer dollars?

For the answer to this question, we need to go back to the very first decision to bail out AIG, made, we are told, by then-Treasury Secretary Henry Paulson, then-New York Fed official Timothy Geithner, Goldman Sachs CEO Lloyd Blankfein, and Fed Chairman Ben Bernanke last fall. Post-Lehman's collapse, they feared a systemic failure could be triggered by AIG's inability to pay the counterparties to all the sophisticated instruments AIG had sold. And who were AIG's trading partners? No shock here: Goldman, Bank of America, Merrill Lynch, UBS, JPMorgan Chase, Morgan Stanley, Deutsche Bank, Barclays, and on it goes. So now we know for sure what we already surmised: The AIG bailout has been a way to hide an enormous second round of cash to the same group that had received TARP money already.

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The appearance that this was all an inside job is overwhelming. AIG was nothing more than a conduit for huge capital flows to the same old suspects, with no reason or explanation.

Eliot Spitzer, you may remember, knows Wall Street well. As a prosecutor, he made their lives hell. He's definitely a man worth listening to as these companies scramble for every last cent they can wring from taxpayers. He sees them for what they are.

Read the whole thing. Screw your outrage to the sticking place, and then start shouting before 10am Eastern. We can turn their smoke-and-mirrors into a conflagration. We can turn the magicians' tricks against them.